July 9, 2012

Facebook, Yahoo Resolve Issues, Form Alliance

Facebook and Yahoo have decided that they´re better when they´re together, putting an end to their courtroom battles. Now, they´ve agreed to cross-license the patents at the center of their scuffles and expand their advertising and content-sharing partnership. In the end, Yahoo stands to recover some lost ground in their news services and advertising divisions while Facebook can show their heavily tailored ads on websites other than their own.

For example, Yahoo will now be able to display ads created by a user´s “likes” in Facebook, the first company able to do so.

The patent battle between Facebook and Yahoo was one of the few decisions Scott Thompson was able to make during his extremely short tenure as CEO. Thompson stepped down earlier this year amidst a controversy about his education and threats from investors to oust him if he didn´t go peacefully. Now, under the guidance of Ross Levinsohn, the two companies have found peace in a patent deal in which neither company will pay the other for use of their patents.

Levinsohn set about ending this patent dispute as soon as he took over Thompson´s role as CEO. Thompson wanted to go to war over the patents in an attempt to earn some big money once the legal battle was through. Though they weren´t cut a huge paycheck now, Levinsohn worked together with Facebook´s COO Sheryl Sandberg to open the door for future ventures.

According to a press release, Levinsohn has said, “We are excited to develop a deeper partnership with Facebook, and I´m grateful to Sheryl and her team for working hard together with our team to develop this dynamic agreement. We are looking forward to building on the success we have already seen to provide innovative new products and experiences for both consumers and sponsors.”

Thompson wanted to sue Facebook over their use of 10 Yahoo patents, including several which deal with online advertising and online profiles. In the suit, Yahoo said Facebook was “one of the worst performing sites for advertising” before they started using Yahoo´s patents. Facebook fired back with a countersuit a month later, claiming Yahoo was choosing “litigation over innovation.”

“I´m pleased that we were able to resolve this in a positive manner and look forward to partnering closely with Ross and the leadership at Yahoo!,” said Ms. Sandberg, Facebook´s first female director.

“Yahoo!´s new leaders are driven by a renewed focus on innovation and providing great products to users. Together, we can provide users with engaging social experiences while creating value for marketers.”

Yahoo has been in a tough spot over the past several years. Therefore, it´s easy to see Thompson´s decision to go to war as a means to an end, a way for the smaller, financially troubled company to take from the rich. According to All Things D, many thought Yahoo could have won the patent dispute. Facebook, on the other hand, was preparing for a long and expensive battle, and likely could have outspent Yahoo in court rather than having to offer them a payout.

Levinsohn is acting only as interim CEO of Yahoo, as the board has yet to officially hire their next leader. This movement to peace and profitability could look good on Levinsohn´s resume, however.